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The Asian Development Bank has tied up with IFMR Capital and IndusInd Bank to provide $20 million in loans to microfinance institutions (MFIs) in India.

Under the pact, the ADB and non-banking finance company IFMR will cover part of the default risk of selected MFIs at agreed proportions.

The Manila-based ADB will provide a guarantee cover of $20 million for initial allocation by IndusInd Bank, according to a press release.

The press release did not say which MFIs are due to get funding under the programme. But it said that most have passed the credit underwriting standards of IFMR and the ADB.

Under the partial guarantee programme, the ADB aims to provide loans to 200,000 households across India.

The multilateral lender has till date provided $207 million in local currency loans to 1.23 million individuals in the country.

IFMR has raised about Rs 19,500 crore for its clients till date. This includes $28 million through non-convertible debentures this year for Janalakshmi Financial Services.

Kshama Fernandes, MD and CEO at IFMR, said the partial guarantee programme provides an alternative source of debt financing to MFIs catering to the poorest households. “The guarantee allows banks to leverage their risk appetite and significantly increase their lending to MFIs,” she said.

The microfinance sector has seen a vast change this year with the biggest player in the sector, Bandhan Financial, getting a bank licence and eight others getting small finance banks licences from the Reserve Bank of India. The government has also played an important role in ensuring refinancing to sector by setting up MUDRA bank with a corpus of Rs 20,000 crore.